Chinese farmers worked at their paddy fields in a village in Congjiang county, southwest China’s Guizhou province on Tuesday.PHOTO:AGENCE FRANCE-PRESSE/GETTY IMAGES

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By MARK MAGNIER
The Wall Street Journal

Oct. 19, 2016 8:39 a.m. ET

BEIJING–Fresh doubts emerged over the reliability of Chinese statistics on Wednesday after officials said the economy grew 6.7%—for the third consecutive quarter.

It was the first time since Beijing started releasing quarterly figures in 1992 that it had achieved such a feat of consistency.

Economists say it is rare for a fast-growing economy to clock the same growth quarter after quarter. In China, it happens because Beijing sets a hard economic target—6.5% to 7% this year—then does what it takes to reach this level, whether through fiscal stimulus, arm twisting of state companies or creative accounting, these people say.

The International Monetary Fund and numerous economists have urged Beijing to scrap that system, saying it leads to excessive fiscal stimulus that fuels manufacturing overcapacity and debt.

“It’s quite implausible that growth would be 6.7% for three straight quarters,” said Julian Evans-Pritchard, an economist with Capital Economics Pte. “They’re obviously smoothing the data quite a bit” he said, adding: “Even by Chinese standards, this is a new level of stability.”

China’s one-party state places a premium on stability, control and gradualism, economists say. Higher growth targets also help stem unemployment that could fuel social instability and threaten party control, they add. China’s official unemployment rate has remained between 4% and 4.3% since 2002. Yet a paper from an American nonprofit group, the National Bureau of Economic Research, says the actual rate was an average of nearly 11% between 2002 and 2009.

Economists say Chinese growth data appears to be massaged by one or two tenths of a percentage point–worth $10 billion to $20 billion in output. Any more would draw heightened global scrutiny, they say.

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“There always seems to be a tendency to round up rather than down,” said IHS Markit Ltd.economist Brian Jackson. “They tend to use something like the “other services” category.

China’s National Bureau of Statistics didn’t immediately respond to questions. But in the past it has said that its methodology is sound and in keeping with accepted global standards.

In past periods of double-digit growth, Beijing often appeared to go the other way, understating growth and inflation numbers, economists say. A study this year by economists Emi Nakamura, Jón Steinsson, and Miao Liu in the American Economic Journal concluded that China underreported growth by several percentage points a year in the late 1990s, then overestimated growth and inflation after 2002. “Chinese official statistics are ‘too smooth,’” it said, which it said may be the result of political sensitivities as well as poor data gathering methods.

“Concerns about inflation are one factor often cited as contributing to the discontent that lead to the 1989 Tiananmen Square protests,” it said. “The remarkable stability of growth and inflation statistics over the past two decades has undoubtedly been an important source of popular support for the Chinese Communist Party.”

China’s statistics have also come under question at home. When Chinese Premier Li Keqiang was party secretary of northeastern Liaoning province in 2007 he was quoted in a leaked U.S. cable decrying the accuracy of what he called “man-made” statistics, adding that he relied on measures presumably more difficult to manipulate, including electricity output and freight traffic.

Since then, numerous banks have created their own version of a “Li Keqiang index” inspired by his apparent skepticism.

China has made periodic efforts to improve—or at least defend—the veracity of its growth numbers. Earlier this month, President Xi Jinping stressed the importance of preventing fake government statistics, vowing at a central leading group on reform to punish data cheaters, according to the official Xinhua News Agency.

Officials have strong incentives to fudge growth statistics, economists say. While Beijing has edged away from evaluating local officials solely on growth statistics, the numbers remain an important criterion for getting promoted. Double counting is another factor when, for example, transactions across borders are claimed by both provinces. National statisticians now collect their own independent provincial data in a bid to improve the data’s accuracy. In 2015, China adopted an IMF standard aimed at strengthening its data system.

The official 6.7% growth figure for the January through March period, when growth seemed particularly weak, was the most questionable of the three, many economists said.

Mr. Evans-Pritchard said growth in the third quarter may have exceeded 6.7% while the first quarter was lower. “This allows China to reverse some massaging they did earlier, bring their data closer to reality,” he said.

RHB Capital Bhd. economist Fan Zhang warned: “There could be more intervention as growth slows. They’ve set a target of 6.5% from now until 2020 and need to make that target.”